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| 1 | |
Three advantages of the corporate form of organization are the ease of transfer of ownership, limited liability for the shareholders and an unlimited life for the business entity. |
| | A) | True |
| | B) | False |
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| 2 | |
The intent of the Sarbanes-Oxley Act of 2002 is to protect the public from accounting fraud and financial malpractice. |
| | A) | True |
| | B) | False |
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| 3 | |
Which one of the following is an advantage enjoyed by a corporation but not by a sole proprietorship? |
| | A) | unlimited liability for the firm's owners |
| | B) | ease of company formation |
| | C) | unlimited life of the company |
| | D) | double taxation of profits |
| | E) | separation of general and limited owners |
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| 4 | |
The term capital structure describes the: |
| | A) | mixture of long-term debt and equity a firm uses to finance its operations. |
| | B) | mixture of long-term investments made by a firm. |
| | C) | size, timing, and risk of future cash flows. |
| | D) | management of short-term assets and short-term liabilities. |
| | E) | mixture of short-term liabilities a firm uses to finance its short-term assets. |
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| 5 | |
Which one of the following is a true statement concerning a general partnership? |
| | A) | General partners are not responsible for the debts of the partnership. |
| | B) | General partners do not manage the partnership. |
| | C) | The income from the partnership is taxed as personal income to the individual partners. |
| | D) | A general partnership continues when one of the partners dies. |
| | E) | Written partnership agreements are not recommended for general partnerships. |
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| 6 | |
Which of the following is (are) considered a benefit of the corporate form of organization?
I. ease of the transfer of ownership
II. limited life?
III. double taxation |
| | A) | I only |
| | B) | II only |
| | C) | I and II only |
| | D) | I and III only |
| | E) | I, II and III |
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| 7 | |
The common stock of the Kenper Group is currently valued at $45 a share. The shareholders have received two offers to purchase their firm. In the first, Kenper shareholders would receive $60 per share in cash for their stock and existing managers would lose their jobs. In the second, Kenper shareholders would receive $55 in cash for their stock, but the firm's managers would retain their positions after the firm is purchased. Kenper's management is acting to block the first offer and to support the second offer. This is an example of a(n): |
| | A) | portfolio management problem. |
| | B) | agency problem. |
| | C) | marketing problem. |
| | D) | working capital decision. |
| | E) | cash management decision. |
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| 8 | |
Which of the following are reasons why the corporate form of business is superior when it comes to raising capital?
I. unlimited business life
II. ease of transfer of ownership
III. ease of formation
IV. unlimited liability |
| | A) | I only |
| | B) | II only |
| | C) | I and III only |
| | D) | III and IV only |
| | E) | I and II only |
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| 9 | |
Which of the following are stakeholders in a firm?
I. employees
II. Customers
III. Stockholders
IV. government |
| | A) | I and II only |
| | B) | III only |
| | C) | I and III only |
| | D) | II and IV only |
| | E) | I, II and IV only |
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| 10 | |
Which one of the following statements is correct concerning the cash flows of a corporation? |
| | A) | Generally, cash flows from the firm to the government. |
| | B) | The financial markets receive cash from the firm when the firm issues securities. |
| | C) | Dividends are cash flows from the financial markets to the firm. |
| | D) | When a firm incurs long-term debt, cash flows from the firm to the financial markets. |
| | E) | Interest paid by the firm is a cash flow from the financial markets to the firm. |
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